Energy, Environment & Utilities

Global industry agenda


Are you ready to pivot to the utility models
of the future?

A global energy transition is afoot, driving structural shifts in the industry, challenging leaders to adopt new strategic and operational imperatives

How can environment, energy and utilities industry leaders seize opportunities today to win tomorrow?

Disruptive forces

Powerful global forces outside the control of any one
company are compelling rapid change for environment,
energy and utilities organizers and providers.


Multi-industry forces are a current reality


Sustainability becomes imperative

Mitigating damages from climate change drives adopting a renewable energy supply as a social and business imperative


Viable substitutes emerge

Base costs of renewable energy supply technologies (for example, solar photovoltaics [PV], wind, storage and so forth) reach grid parity – achieving economic viability as demand response achieves legitimacy through new market and regulatory constructs



Customer expectations are invigorated

Customers are increasingly neither passive nor captive as regulation, demographics and energy use patterns fundamentally shift expectations


Expectations of infrastructure increase

The demands for energy system resilience escalate as society recognizes that grid services are essential to the economy and national security


Urgent talent challenges intensify

The imminent mass retirements of an aging workforce, along with the transformation to a digitally enabled enterprise, creates the urgent need to re-conceptualize and rebuild the industry’s talent pool


Convergence amplifies reliance

Accelerating convergence of the energy industry with elements of the transportation, water and government sectors creates opportunity for growth – but reliance across essential services poses risks



Digital technologies

Redefining possibilities in the environment, energy and utilities industry, digital technologies will compound disruption and
have hyper-exponential impact.


AI icon

Artificial intelligence

AI icon

Artificial intelligence

Forces utilities to re-conceptualize customer and utility operations


Mobile icon

Mobile

Moble icon

Mobile

Empowers people to manage their energy footprint anytime, anyplace


API icon

APIs/microservices

API icon

APIs/microservices

Fosters the rapid creation of an energy integration ecosystem


Cloud icon

Cloud

Cloud icon

Cloud

Instantiates inexpensive, agile systems required for industry disruption


Blockchain icon

Blockchain

Blockchain icon

Blockchain

Creates a proxy for traditional infrastructure, lowering barriers to market entry


IoT icon

Internet of Things

IoT icon

Internet of Things

Spawns the data-driven utility of the future


Cybersecurity icon

Cybersecurity

Cybersecurity icon

Cybersecurity

Safeguards the critical infrastructure foundational to the world economy


Blockchain icon

Hyperlocal geolocation

Hyperlocal Geolocation icon

Hyperlocal geolocation

Drives the availability of mobility-as-a-service, enabling the sustainable electrification of the transportation sector


Analytics icon

Analytics

Analytics icon

Analytics

Leverages data to help enable disruptive innovation, which creates the new industry order


Emerging consequences

Each manifestation of disruptive forces has the ability to shape a new future, and affect the environment, the enterprise and the market.


Number 1 graphic

Customer impacts

Previously captive customers adopt alternatives

Previously captive customers adopt alternatives


Industry incumbents must learn to strategize like a consumer business – their customers are no longer captive ratepayers

  • California Public Utilities Commission (CPUC) predicts that more than 85% of retail electric load will be served by non-investor owned utility (IOU) sources by the mid-2020s in California 1
  • Of consumers that intend to install rooftop solar equipment, 73% plan to do so within 3 years 2

A generational shift among primary consumers requires a completely different frame of reference for customer interactions

  • Millennials in the US value energy usage data and are more willing than non-millennials to pay extra for access to that data 3

Increasing expectations regarding response time to the public and/or regulators

  • 42% of customers expect a company to respond to a service issue or inquiry on social media within 60 minutes 4
Number 3 graphic

Enterprise impacts

Advanced digital technology proliferates

Advanced digital technology proliferates


Significant knowledge is currently held by an aging workforce, and incoming talent demands a digitally enabled workplace

  • 25% of US employees in electric and natural gas utilities will be ready to retire within five years. Woodside Energy uses Watson to digitally capture and share knowledge of experienced workers 9
  • Three-quarters of millennials say a company’s digital workplace is a factor in their employment decisions 10

The current industry workforce requires time-consuming re-training and re-skilling

  • Line worker training can take up to seven years, as workers need experience in a variety of environments 11
  • DTE Energy reduces training time by using virtual reality (VR) to simulate events 12
    and Exelon uses VR to simulate plant maintenance 13

Utilities are increasingly investing in products that extract insights from their operational and customer data

  • Utilities are expected to spend USD 73 billion on IoT solutions in 2018, 14
    and USD 20 billion on advanced metering infrastructure (AMI), back office and customer analytics in total by 2020
    15
Number 5 graphic

Market impacts

Regulatory/political directives transform the industry value chain

Regulatory/political directives transform the industry value chain


The pace of industry disruption threatens to exceed the pace of regulatory change

  • 35% of US utilities say the greatest obstacle to their business model evolution is the existing regulatory model 27

Regulatory permission for community aggregation expands

  • Eight states in the US allow Community Choice Aggregation (CCA), 28 and 15% of the Fortune 500 have signed renewable energy PPAs 29

Landmark regulations may point to the future of utilities

  • NY Reforming the Energy Vision (REV) 30
  • California Distributed Energy Resources (DER) Action Plan 31
  • Illinois Future Energy Jobs Act 32
  • 2011 Energy Infrastructure Modernization Act 33
  • 35 countries have deregulated their energy sectors 34
  • 29 US states have renewable portfolio standards 35
Number 2 graphic

Disruptors enter multiple utility segments

Disruptors enter multiple utility segments


Consumer energy alternatives threaten to become an intermediary between
utilities and customers

  • New products provide alternatives to utility energy services, for example, solar-plus-storage (e.g., Tesla, Vivint) and in-home devices (Nest, Sense) 5
  • The share of renewables in power generation globally will reach 30% in 2022, up from 24% in 2016 6

Utilities face disruption from cross-industry competitors; however, utilities are well-positioned to serve as trusted advisors in the market for energy-related consumer products

  • Google acquired Nest Labs, a provider of smart home devices and energy audit services, for USD 3.2 billion 7
  • Utility endorsement of energy-related technologies makes more than 50% of millennials more likely to adopt them 8
Number 4 graphic

Utilities restructure and reform their organizations and business structures

Utilities restructure and reform their organizations and business structures


Traditional industry leaders are investing in alternative energy sources and new business models

  • In Europe, utilities such as E.ON and RWE are separating conventional power generation from renewables businesses (Uniper and Innogy spinoffs) 16, 17
  • Utilities in North America and Europe have invested over USD 2.9 billion in 130 distributed energy companies since 2010 18
    • Duke Energy acquired REC Solar, a commercial and industrial (C&I) solar provider 19
    • Southern Power now owns nine wind projects, including five in TX 20
    • TNB in Malaysia acquired 50% of Vortex Solar in the UK 21
    • Utilities are entering corporate power purchase agreements (PPAs): NV Energy with Apple, 22 Duke Energy with Google, 23 Enel Green Power with Facebook 24

Traditional industry leaders are moving into new business areas to diversify their offerings

  • Energy Management Services (EMS) is expected to double in size from USD 35 billion to USD 71 billion between 2016 and 2022 25

  • Energy providers moving into EMS may also provide financing to customers for capital improvements to increase energy efficiency (for example, ESB) 26
Number 6 graphic

Sustainability, resilience and cross-industry investments ascend

Sustainability, resilience and cross-industry investments ascend


Sustainability becomes a strategic norm in the industry, on a par with safety, reliability, resilience and affordability

  • Base cost renewable power is expected to fall within the cost range of fossil fuels globally by 2020 36, 37
  • North American utilities are placing priority on a cleaner grid, planning for electric vehicles and energy storage systems in 2018 38

Partnership between utilities and retailers is emerging

  • Utilities such as Los Angeles Department of Water & Power (LADWP) and Électricité de France (EDF) use online marketplaces to sell energy efficient products and generate new revenue streams 39, 40

Industry leaders are driving the electrification of transportation

  • California utilities have initiated electric vehicle (EV) charging pilots, but the state will need more than 1 million ports by 2030 to meet transportation electrification goals. Utilities are uniquely positioned to deploy this infrastructure at scale 41

Pressing challenges

Acknowledge and act upon industry challenges
in the near term to stay competitive.


Deepening engagement sophistication and effectiveness as captive customers diminish

Deepening engagement sophistication and effectiveness as captive customers diminish


  • Energy intensity is declining globally, pressuring revenue generation
  • Expanding prosumer supply sharply reduces demand
  • Demographic changes transform baseline expectations in increasingly competitive markets

Integrating new energy resources into the grid




Integrating new energy resources into the grid


  • Renewables present the technical challenge of intermittency and the business threat of disintermediation
  • Supply chain diversification ironically increases industry value chain complexity
  • Convergence with transportation, water and public-private infrastructure (for example, smart cities) value chains amplifies grid essentiality

Industry norms
are amplified




Industry norms are amplified


  • Industry leaders continue to be defined by excellence in delivering industry norms of safety, reliability, affordability
  • Sustainability and resilience rise in impact with traditional norms
  • Incremental change is insufficient to address nontraditional challenges

Transformational opportunities

Technology-enabled opportunities to empower your organization to address pressing challenges and compete in the marketplace.


Deepen engagement through rich customer experiences

Deepen engagement through rich customer experiences


  • Build digital customer experiences with artificial intelligence (AI) to personalize interactions and to supplement call center agents
  • Transform from a call center to an engagement center using a knowledge-rich environment that elevates roles from
    service to advisory
  • Effectively partner and define new revenue streams and
    business models

Embrace your role in the energy integration ecosystem

Embrace your role in the energy integration ecosystem


  • Assume the mantle of sustainability within new market models
  • Orchestrate inclusive ecosystems and create new energy marketplaces
  • Become the platform of choice by establishing stalwart positioning for safe, reliable and affordable grid access

Digitally reinvent
the enterprise


Digitally reinvent the enterprise


  • Innovate through analytics-driven operational excellence
  • Transform to a data-driven enterprise
  • Re-conceptualize talent for the utility of the future

Start here to assess your readiness for
the future

Critical question 1

Re-invent customer relationships

  • Are you innovating the customer experience or simply improving your existing model?
  • How is your company finding new ways to interact with and serve customers?
  • Are your marketing programs driving prospects to your site or meeting your goals for program enrollments?
  • How are your contact center agents empowered with the best answer for every customer?

Critical question 2

Strategically redefine your ecosystem strategy

  • How have you defined your strategic energy integration ecosystem role?
  • Are you partnering with companies that can help you thrive in the challenging marketplace of the future?
  • Have you established a regulatory strategy that will allow your organization to prosper in a competitive environment?

Critical question 3

Pursue your technical advantage

  • How have your systems been optimized to gather data and share insights across business silos?
  • How is your IT organization prepared to support new technologies such as blockchain and AI as they transform industry operations?
  • What is your strategy to become a data-driven enterprise?

Take action

Explore environment, energy and utilities industry solutions

Discover how IBM’s digital solutions can help you provide the seamless environment, energy and utilities services that consumers and producers want with the improved efficiency you need.

Access more IBM Institute for Business Value environment, energy and utilities industry research

Read business insights and recommendations in our library of environment, energy and utilities industry thought leadership reports built on primary research and analysis.

Connect with industry experts

©2018 IBM Corporation